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Nestle Nigeria: The dividend Aristocrat whose shares are worth buying

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Nestle Nigeria shares are worth buying because the consumer goods giant has proven itself as a reliable dividend payer even amid the Covid-19 crisis and difficult business environment.

It isn’t hyperbole to refer to the frim as a dividend aristocrat who has been  rewarding shareholders from distributable profit since it was founded in 1961.

The ability to pay steady dividends stemmed from strong earnings, a robust reserve, and solid working capital positions; the majority of its products are in the kitchen of every household, which is why it has the buffers to withstand macroeconomic headwinds.

Notably, the company declared a total dividend of N70 for the financial year ended 2020, and it tapped into retained earnings to fund the payment since dividend per share (DPS) are higher than earnings per share of N49.47, and that translates to a payout of 141.50 percent.

The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. It is the percentage of earnings paid to shareholders in dividends. The amount that is not paid to shareholders is retained by the company to pay off debt or to reinvest in core operations.

The managers of Nestle have a good knowledge of corporate to have adopted an aggressive dividend policy.

This is because two economic gurus and Nobel prize winners Francisco Modigliani and Metro Miller in their dividend irrelevance theory opined that dividend policy has no effect on the wealth of the shareholders or prices of the shares and hence it is irrelevant so far as the valuation of the firm is concerned.

This theory regards dividend policy merely as a part of financial decision because the earnings available may be retained in the business for reinvestment. But if the funds are not required in the business they may be distributed as dividend. Thus, the decision to pay dividends or retain the earnings may be taken as a residual decision.

Well, all economic theories are based on assumptions, and such postulates could be tweaked and rejigged, or even subject to criticisms that are tantamount to tumultuous uproar.

In the last four years, Nestle Nigeria has been increasing dividend payment, even as most companies were slashing payments so as to conserve cash during the coronavirus induced headwinds that paralyzed economic activities across the globe.

In the past four years, Nestle Nigeria has been consistently magnifying payments to shareholders.

Total dividend increased by 10 percent to N55.48 billion in 2020 from N50.33 billion in 2019; payment from distributable profit surged by 90 percent to N37.65 billion in 2018 from N19.81 billion the previous year.

Shareholders will get bumper dividends this year as Nestle has maintained its growth momentum, starting 2021 with grandiose performances.

Revenue spiked by 24.07 percent to N87.25 billion in March 2021 from N70.32 billion the previous year.

The growth at the top line (sales) was largely driven by the combined impact of further growth in beverage sales, optimized cost management practices and lower finance costs.

The increases in beverage sales were mostly driven by consumer preference and demand for Milo, the leading cocoa-based beverage in Nigeria.

Interestingly, analysts expect stable demand for Maggi and Cerelac (premium products) to remain the major catalyst for this segment, amidst thickening competition and new market entrants.

The company’s net income was up 10.76 percent to N12.40 billion in March 2021 from N11.19 billion as at March 2020.

Nestle has been refreshing and launching new market penetrating products that are accepted by consumers across the country, which is why it has the largest product portfolio.

In 2019, the company launched the Maggi Signature powdered seasonings (3 variants – Jollof, Miya and Pottages, to compete against Onga Seasoning) and relaunched Cerelac Junior Fortified Infant Nutrition and Nestlé Pure Life Water.

In February 2020, Nestlé relaunched Golden Morn, adding Grainsmart (which contains 25% of UNICEF‘s recommended daily volume of Iron).

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